Ch8 Flashcards
Dishonoured cheque def
When the bank rejects the cheque
Reasons for dishonoured cheque
Payer’s bank account
does not have enough money
Is closed
is frozen
-expired cheque dated six months ago and is no longer valid
-cheque is post dated : written for a future date
-information on cheque is incomplete ( no date )
- information on cheque is inconsistent ( amount written in numbers does not match account written in words )
Purposes of internal controls + disadvantage
- safeguard assets of the business
- ensure transactions are recorded accurately
- comply with laws and regulations
- can detect or deter the occurrence of fraud, ( employees can still collude )
Why internal controls are needed to protect cash
( why businesses )
Cash is highly portable, easily mishandled and high chance of getting stolen.
Business should implement internal controls to reduce theft or likelihood of error
- ensure cash is well protected and accurately reported
- otherwise, errors, discrepancies or irregularities may not be detected on time and can be misappropriated.
Examples of internal controls
- Segregation of duties
- Custody of cash
- Authorisation
- Bank reconciliation
Segregation of duties
Action: separate cash handling and cash recording duties > no single person has control over the entire cash process.
Business ensures diff employees:
-receive and deposit cash
-authorise invoices for payments and process payments to suppliers
-write cheques and authorise cheques
Authorisation
Obtain approvals for all payments from authorised personnel
- require at least 2 persons to review and approve all payments
- require valid source documents for all payments
- source documents provide evidence that transactions have taken place
business issued cheque to supplier but supplier has not presented cheque to bank
cheque not yet presented
Business desposited cheque with bank but bank has not processed cheque yet
Deposit in transit
